AUD/USD drifts lower for the second successive day
The AUD/USD pair remains under some selling pressure for the second straight day on Wednesday and drops to the 0.6810 area, or a fresh low since January 6 during the mid-European session. The US Dollar (USD) remains pinned near a six-week top amid hawkish Fed expectations and turns out to be a key factor weighing on the AUD/USD pair. In fact, the markets seem convinced that the US central bank will continue to hike interest rates in the wake of stubbornly high inflation. The bets were reaffirmed by the US CPI and PPI data released last week, which showed that inflation isn't coming down quite as fast as hoped.
Moreover, the incoming robust US macro data points to an economy that remains resilient despite rising borrowing costs. This comes on the back of hawkish comments by several FOMC officials, including Fed Chair Jerome Powell, stressing the need to keep lifting rates gradually to control inflation. The prospects for further policy tightening remain supportive of elevated US Treasury bond yields and underpin the Greenback.
Hence, the market focus will remain glued to the release of the FOMC meeting minutes, due later during the US session. Investors will look for fresh cues about the Fed's future rate-hike path, which will influence the USD and provide a fresh directional impetus to the AUD/USD pair. In the meantime, the looming recession risks, along with geopolitical tensions, should benefit the safe-haven buck and weigh on the risk-sensitive Aussie. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside. Even from a technical perspective, the recent breakdown and acceptance below the 50-day SMA favor bearish traders. Some follow-through selling below the 0.6800 mark will reaffirm the negative outlook and set the stage for a slide toward testing sub-0.6700 levels, or the YTD low set in January.
Hence, the market focus will remain glued to the release of the FOMC meeting minutes, due later during the US session. Investors will look for fresh cues about the Fed's future rate-hike path, which will influence the USD and provide a fresh directional impetus to the AUD/USD pair. In the meantime, the looming recession risks, along with geopolitical tensions, should benefit the safe-haven buck and weigh on the risk-sensitive Aussie. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside. Even from a technical perspective, the recent breakdown and acceptance below the 50-day SMA favor bearish traders. Some follow-through selling below the 0.6800 mark will reaffirm the negative outlook and set the stage for a slide toward testing sub-0.6700 levels, or the YTD low set in January.